How to Choose Your Best Credit Card for 2013

TheStreet.com

NEW YORK (LowCards.com) -- The start of a year is typically when consumers take a close look at their finances, making resolutions on saving money and cutting expenses. So it's good to know there are steps households can take to save a little extra and protect their finances in 2013, including getting the right credit card.

Changing credit cards can save substantial money on interest payments or earn some extra cash via rewards programs. But the choices can be overwhelming; there are more than 1,000 credit cards offered in the United States, and they are not "one-size-fits-all," making it important to thoroughly research and compare cards to find the right one for your needs.

Getting started
Before shopping for a credit card, it is important to have a plan for how you will use the "loan." Are you a disciplined person that charges what you can afford and pays off the balance in full on time every month? If so, a rewards card is a good option. If you carry a balance from month to month, getting a card with the lowest possible interest rate is the most important consideration.

The ads you see on television and in print can make every card look good, but ignore the pictures of happy faces and the promises in the headlines. Read the terms and conditions of the offer before applying for any credit card. The offer you get today is determined by your credit score and how you have handled finances in the past. The lowest interest rate is given only to applicants with good or excellent credit scores, not to everyone who applies. If you don't have a good credit score, you could get an offer with a higher interest rate or a declined application. And don't assume you know what your credit score is. Before you apply for a credit card, check your credit score so you know what offer you can expect. This also gives you a chance to find and correct any errors that may be pulling down your score. A FICO score in the mid-700s is considered good, and you can expect to get a relatively low interest rate with it. A FICO score less than 640 may be too low to be approved for a card, so you may have to look at other options, such as a secured card.

Low Interest Rates
If you carry a balance on your credit card from one month to the next, get a credit card with a low interest rate. The average advertised APR last week was 14.35% according to the LowCards Complete Credit Card Index. The advertised rate is usually the lowest rate issuers charge, so don't stop here. Look in the terms and conditions for the range of rates, because most cards have three tiers. The higher your credit score, the lower your APR will be. If your FICO score is in the mid-600s, you will probably get the highest rate.

Here are some of the most attractive low-interest credit cards:

Capital One Platinum Prestige COF
The lowest rate is 10.9% (the highest is 18.9%). The card offers 0% through March 2014 on purchases as well as balance transfers with a 3% balance transfer fee. There is no fee for international transactions.

Simmons First Visa Platinum V
An APR of 7.25%, but you have to have outstanding credit to be approved. No transaction fee for balance transfers.

When shopping for a low-interest credit card, consider your credit union and local bank. The interest rates may be slightly lower when compared with national banks. Here are examples of low rates from credit unions:

BECU Visa
The rate is 6.9% to 18%. The credit union is open to residents of Washington state and Boeing BA employees. There is a $25 annual participation fee.

First Command Bank Platinum and Classic Visa
The Platinum rate is 6.25%, the Classic rate is 10.25% and there is no fee for balance transfers. The bank is in Fort Worth, Texas, currently accepting account applications only from existing clients of First Command Bank or First Command Financial Services.

Platinum Premier Visa from First Tennessee Bank
The rate is 5.15% to 13.15% based on creditworthiness, but is available only to First Tennessee banking customers.

Balance transfers
If your interest rate is above 14% and you have a good credit score, this may be a good time to try to secure a lower rate on your credit card. Start with a call to your credit card issuer and ask for a lower rate, telling them you are considering transferring your balance to a card with a lower rate. They may lower your APR just to keep you as a customer. If they don't, transfer your debt onto another card offering an attractive interest rate and you may be able to save a significant amount of money on interest charges. Many issuers are offering 0% interest rates on balance transfers for an extended period. The two important considerations for consumers are to make sure they can pay off this transferred balance during that 0% introductory period and that the interest penalties you save are more than the fee you will pay to transfer the balance from one issuer to another.

When comparing cards for a balance transfer, look also at the ongoing interest rates. If you can't pay off the balance before the introductory period ends, you will eventually be paying that ongoing interest rate. Another consideration is that the credit card issuer may accept only a portion of the amount you want to transfer, so the remaining balance may be charged the ongoing interest rate.

The best offers will typically be given to applicants with a credit score in the mid-700s. If you have a score less than this, you may get a shorter introductory period, or your application may be declined.

Citi Simplicity C
This card gives you a 0% interest rate for 18 months on balance transfers and new purchases. That gives a year and a half without paying interest on your transferred balance. The balance transfer fee is 3%. The ongoing APR is 12.99 to 21.99%.

Discover More DFS
There is a Discover More card that offers 0% interest on balance transfers for 18 months. Consumers also get 0% on purchases for six months. The balance transfer fee is 3% and the ongoing APR is 10.99 to 20.99%.

Slate from Chase JPM
Slate offers a 0% intro rate for 15 months on balance transfers, but the unique feature of this card is that it is not charging a balance transfer fee when you transfer during the first 60 days of account opening. The ongoing APR is 11.99 to 21.99%.

Cash rewards
According to Consumer Reports, 56% of Americans pay off their credit card debt each month, so reward cards are a good option for the majority of Americans. If you are undecided about the best reward card for your needs, a card that gives you a little extra cash is always a good choice. A common reward payout is a penny per dollar spent -- so reward cards won't make you rich, but every little bit helps. Some also offer a bonus as a new customer if you make a certain amount of transactions during the first three months. Cash-back cards typically have a slightly higher interest rate, so apply for a reward card only if you will pay off the entire balance each month.

Chase Freedom
Get a $100 bonus if you spend $500 in the first three months. You will earn an unlimited 1% cash back on everything you buy. Earn 5% cash back on up to $1,500 in seasonal spending categories that change every three months. The interest rate is 12.99% to 22.99%.

Blue Cash Preferred from American Express AXP
Earn $150 cash back in reward dollars when you spend $1,000 in the first three months of membership; 6% cash back for the first $6,000 of purchases at U.S. stand-alone supermarkets; 3% cash back on gas at U.S. stand-alone gas stations and select departments stores; and 1% cash back on all other purchases. There is a $75 annual fee.

Fidelity American Express Rewards
Earn 2% cash back on purchases when you direct your deposit into your eligible Fidelity account. Every $2,500 spent equals a $50 deposit. The APR is 13.9%. There is no annual fee and no limit to rewards.

Secured cards
If your credit score is too low (less than FICO 640) to qualify for a regular credit card, a secured card may be your best option. These require a security deposit, which will be your credit limit. Choose a card that reports your payment history to the credit bureaus, because this can eventually raise your credit score if you use this card responsibly and make all payments on time. You do not have to use this card, but just keeping it open and in good standing can create a positive credit history. Secured cards offer almost 100% approval, but they also charge higher interest rates and fees.

Capital One Secured MasterCard MA
Get automatic reporting to the three major credit bureaus. You can earn credit line increases based on your payment and credit history. The card requires a $200 minimum security deposit, and your credit line will be equal to your security deposit. The interest rate is 22.99% and the annual fee is $29.

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